Lemon Company produces and sells 25,000 bottles of lemonade each year. The following information reflects...
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Accounting
Lemon Company produces and sells 25,000 bottles of lemonade each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Bottle
Total Costs
Variable production costs
$12
$300,000
Fixed production costs
$8
$200,000
Variable selling costs
$6
$150,000
Fixed selling and administrative costs
$4
$100,000
Total costs
$30
$750,000
Lemon marks up its prices 45% over full costs. It has surplus capacity to produce 15,000 more bottles. A Dutch supermarket company has offered to purchase 10,000 bottles of the product at a special price of $32 per bottle. Lemon will incur additional shipping and selling costs of $1 per bottle to complete this order.
Required: (a) What will be the effect on Lemon's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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